General Mills Inc. said Tuesday that sluggish U.S. retail sales and high commodity costs dragged its profit to its lowest quarterly gain in more than a year.
The Golden Valley-based maker of Cheerios, Yoplait yogurt, Progresso soups and other brands said third-quarter profits rose less than 1 percent to $242 million, or 63 cents a share, missing Wall Street estimates by 3 cents. The results for the quarter ended Feb. 22 were all the more disappointing because several analysts already had lowered their third-quarter profit forecasts earlier this year.
General Mills shares closed Tuesday at $45.16, down 20 cents.
In a conference call with analysts, Chief Executive Steve Sanger also said the company formally responded to the Securities and Exchange Commission's Wells notice.
Last month, the SEC informed General Mills that it probably will file charges against the company and its two top executives, Sanger and Chief Financial Officer Jim Lawrence, over the foodmaker's sales practices.
The SEC is examining both how much money the company paid grocers and other distributors to get its products on the shelves and its revenue recognition practices, including whether General Mills shipped more products than were necessary to meet demand. The tactic, known as loading, sometimes is used by companies to meet sales goals for a set time period.
"The timing of the investigation is fully in the hands of the SEC," said Sanger, who did not give further details.
Over the past several months, General Mills' retail sales in the United States have grown steadily worse. For fiscal 2004, third-quarter sales in the United States rose just 1 percent, after increases of 3 percent in the second quarter and 7 percent in the first quarter. For the third quarter in fiscal 2003, the period the company allegedly engaged in loading, U.S. sales jumped 14 percent.
During the conference call, General Mills executives blamed sluggish U.S. sales on the popularity of low-carb products. While such foods have hurt overall industry sales in categories such as dry dinners, cereals and refrigerated dough, Sanger said General Mills has fared worse than its competitors. For the first time since the beginning of 2003, General Mills is losing market share, he said.
Sanger said the company has been too slow in responding to the low-carb phenomenon.
"We need to execute better," he said. "The way we drive growth is through compelling product news. Our new products have not proved to be as compelling and timely as they have in the past. We have been a bit behind the curve in bringing [low-carb weight-management] products to market."
So far this year, General Mills has rolled out Total Protein cereal, 8th Continent Vanilla light soy milk and Progresso Carb Monitor. In the next few months, the company also will introduce Yoplait Ultra yogurt and Hamburger Helper Carb Monitor. Sanger expects these new products to significantly boost sales in the fourth quarter, which also contains an extra selling week because of the leap year. The company needs a particularly strong fourth quarter to meet its annual earnings forecast of $2.75 a share, Sanger said.
While some analysts expressed frustration with General Mills' performance, most seem to give Sanger the benefit of the doubt.
"We believe investors will need to be patient with this unit," Michael Hamilton, an analyst with RBC Dain Rauscher, wrote in a recent research note.Star Tribune/Thomas Lee
